Chinese Savings
I just read an article in TIME magazine, “Wanted: A New Miracle“, written by Bill Powell about how the economic slump is impacting China. Powell’s point is that China is not immune to the worldwide economic problems, and while some Chinese companies are faring well, there are many people who have lost their jobs and are returning home from the cities to their villages. Obviously, this is a plight faced by many around the world, even in the United States. While most people do not migrate home as the Chinese do,many people are losing their homes.
Powell goes on to opine about the ways in which China may work towards “fixing” their economy. I am not an economist, nor do I work in the financial industry. However, one of Powell’s suggestions really irk me in its ridiculousness. In addition to stating that the Chinese economy should be more like the U.S’, he says that, “Chinese consumers can [spend] more and [reduce] their stratospherically high national household savings rate, which stands at more than 25%, compared with a savings rate in the U.S. that hovers near zero.” He goes on to claim that “The Chinese save much of what they earn because the government has yet to provide the web of social services available in other countries. China’s national social-security system and government health-insurance schemes are drastically underfunded; moreover, they don’t cover the millions of migrant workers who helped power the country to high growth but are now being laid off.” I nearly choked on my Chinese food. For real?
Powell has been a writer for TIME, CNN, and Fortune magazines, so I am sure that he does have much more knowledge than I do about the economies of the world, among other things. However, I really took issue with what he says.
#1 – Why SHOULDN’T people save their money? It’s not just the Chinese people in China; the question applies to everyone in the world. The U.S. is a country that lives on debt. Americans borrow money from banks and credit card companies to maintain the often frivolous lifestyles that we want. We continuously pay down the interest that we owe, and not the principal. We expect our parents or Uncle Sam to bail us out when we can’t make those payments. And when worse comes to worse, we stiff those institutions that lent us the money to begin with. We will never truly own anything of value because we will always owe someone else money. So really, why would you want to save? Why wouldn’t anyone want to live a life of debt? For whatever the reason the Chinese people save, I think it is THEIR model that the Americans should model. Powell also states that Chinese people accumulate large nest eggs because they only have one child who can take care of them when they are older. It is a cultural tradition that the children care for the parents. In the U.S., there isn’t such a demand or expectation, which means that parents are pretty much living on their own savings (or lack of) and their $500/month social security checks. Which is MORE reason why people should save. Who can survive on $500/month without supplemental income?
#2 – It is true that the Chinese government does not have the social securities in place for its people. They don’t have adequate health care for all the workers in the force. But neither does the United States. How many times have we been told that Social Security will not be around when we are old enough to retire? We need to put our money in other types of private investments or savings for our future. If we are doing that, then we are *gasp* saving! The government can say we have social security, but it means nothing if you cannot truly protect these securities for your citizens. Additionally, there are millions of Americans who are uninsured, as there are in China. While China has a national health-care system, the U.S. has none. Neither is truly effective as so many people remain uncovered. For many people in the U.S., healthcare is an out-of-pocket expense. If there is no savings, the cost of an emergency visit to the hospital could bankrupt you.
My point is that Powell is making more of a judgement on the way of life of a group of people, more than providing any real or meaningful solution to an economic problems in China.